Low Immigration and High Economic Growth

November 2011

• America’s experience with a low level of immigration provides a useful test of how that affects the nation’s economic performance.
• Between 1925 and 1965 immigrant admissions averaged less than 180,000 persons per year.
• During that period, the share of women in the workforce nearly doubled and minorities gained access to new job opportunities.
• Over those decades, the economy not only grew significantly, it grew more rapidly than it has since mass immigration was again unleashed by legislation enacted in 1965.

One of the arguments currently made for increasing the intake of immigrants and guest workers is that it is vital to the health of the nation’s economy. If this were true, a tough choice would have to be made between economic stagnation and the social and environmental impact of adding further population growth on top of what is already too much.

Fortunately, there is no real dilemma. The economy can grow in a healthy fashion with a low level of immigration. How do we know this? Our economic history demonstrates this fact. We had a level of immigration between 1925 and 1965 that averaged less than 180,000 admissions per year. Illegal immigration during that period was not the serious problem that it is today.

During that period of restricted immigration curtailed in part because of World War II and the Depression the overall trend in economic growth was impressive. It was a time of rapid industrialization and mechanization, a major move from rural America and work in agriculture to the cities and industrial jobs. Women entered the workforce in large numbers. In 1920, according to the Census, 23.7 percent of women were in the workforce. By 1970, before the effects of the 1965 change in the immigration law had significantly expanded immigrant admissions, the share of women in the workforce had grown to 43.3 percent.

The best indicator of how the U.S. economy responded to the period of low immigration between 1925 and 1966 may be seen in data that recorded the gross domestic product (GDP) per capita over that period. The chart below shows that trend in constant, inflation-adjusted dollars.

What is readily apparent for the pre-1966 period is the fact that, apart from a rapid jump in per capita GDP during WWII and a drop back following it, the overall trend is rising national product, i.e., economic development. It may also be seen that the increase in per capita GDP has continued since the 1965 Immigration Act unleashed rapid immigration growth. But, the rate of increase since 1966 is not as great as it was during the period of low immigration.

From 1925-1966 GDP per capita increased by 168.4 percent. That is an average annual increase of 4.0 percent. During the period since then (1966-2010) the increase in GDP per capita has been 111.8 percent. That is an annual average increase of 2.5 percent.

Of course, immigration is not the only factor influencing economic change. The role of labor unions, laws, trade, transportation, communication, and technology all play major roles in economic change. As the United States has become more enmeshed in international commerce and other countries have developed economically, greater competition exists for our produce.

It is tempting to look at the greater per annum GDP per capita growth during our earlier low immigration and conclude that a return to low immigration would result in a new surge in per capita growth. A slowing in the availability of low-wage labor, according to economic theory, should have the effect of causing wages to rise to attract more U.S. workers back into those occupations. If the nation’s output continued to grow during a period of slowing growth in population, this would contribute to the growth in GDP per capita. However, because there are other economic forces at play in shaping the national product, that is not a clear-cut prospect. Nevertheless, the nation’s history with low-level immigration and the economic growth during that period provides evidence that it is wrong to suggest that our economy will suffer if immigration and guest worker programs are not increased as business interests are currently asserting and it suggests, on the contrary, that the economy would continue to be healthy if immigration were significantly reduced.